10 tips to reduce your mortgage payments
Many homeowners pay more than they can afford for their mortgage loans. As the cost of living has increased by double-digit percentages since pre-pandemic, making one’s mortgage more affordable is more difficult than cutting down on luxuries or meal planning.
As one of the largest monthly expenses people have, rethinking your mortgage and how you make payments is an important question to ask if the present terms are unsustainable. Here are some tips for lowering mortgage payments.
Try to modify your loan
A permanent change in your financial situation where you can no longer comfortably afford your mortgage might be something you want to discuss with your lender. They may be willing to temporarily or permanently modify your mortgage loan.
Not all lenders may offer loan modification as an option. While it could lower your monthly costs, overall, costs may increase due to the addition of interest, and additional fees.
Wait to renew your mortgage
Know when your mortgage term ends. If you have prepayment penalties you want to avoid, when you renew your loan, you should look for every opportunity to lower your monthly payment.
Negotiate a lower interest rate or a different type of mortgage, such as open, closed, fixed, or variable rate. Additionally, it can be beneficial to make a one-time lump sum payment directly to the principal which many lenders will allow. Discuss with your lender how to proceed when your mortgage is renewed.
Find a lender with better terms
During refinancing, it makes sense to see what else is available. Consider speaking to a mortgage agent who can shed light on what other lenders offer rates and terms. If it makes sense, transfer your mortgage to another lender where you can secure a lower mortgage payment. It may involve extending your amortization or taking other measures.
Ask from a lender
If you call a lender to ask to modify a loan or share your situation, instead of putting it on a customer service representative to provide respite, here are some modifications you can ask for. Each of these is a strategy to lower your monthly amount owing on your mortgage loan. This can help make budgeting for your payment more manageable.
- Lower your interest rate
- Extend the loan term
- Reduce the principal amount owing in monthly payments
Cancel your mortgage insurance
A homeowner who buys a home with a down-payment of less than 20% must secure mortgage insurance which protects your lender. After your equity in a property is above 20%, you can typically cancel mortgage insurance. This cuts down on your monthly mortgage payments. That said, check with your lender to ensure you meet the minimum threshold first.
Extend your mortgage term
When securing your mortgage, opt for the maximum amortization allowed. This can lower your monthly payments by a lot, even if it means paying more interest over the long-term. You may also do this with an existing mortgage through a process known as re-casting or re-amortization. Not all lenders do this, however, and yours may require certain conditions prior to this.
Refinance your mortgage for a better interest rate
Review your interest rate. If interest rates are lower today than when you secured your mortgage, consider refinancing. This is one of the most common strategies to reduce mortgage payments as it effectively secures you with a mortgage to replace what you have. To do this, however, ensure you have good credit and interest rates have improved.
Improve your financial situation
When you refinance, it’s like applying for a mortgage from scratch. You will want to appear financially responsible. If you can significantly improve your financial situation from when you first obtained the mortgage, you qualify for better rates and terms.
- Ensure your credit score is high and your credit report is clear.
- Consider saving for a lump sum payment to lower your principal.
- Pay down other debts to improve your debt-to-income ratio.
- Have a stable job that produces reliable income.
Rent out a part of your home
If your lender is not offering anything usable in terms of lowering your monthly mortgage payment, another way homeowners do it is by providing a portion of their home for rental. This can be done by renting out a room Airbnb-style, or renting out a basement or floor for regular monthly rental income. Assuming you are comfortable with such an arrangement, this can provide significant relief from making monthly payments.
Sell and downsize your home
If none of the suggestions can help lower a mortgage payment, the next viable option is to move to a home that is more affordable. This will reduce your liability. This is a last resort, however, should be an option on the table if your mortgage payments are no longer achievable.
